GOODFUNDSADVISOR
has been in Equities for more than 27 years now.
That rich experience is shown here in his insightful articles.
However, we strongly suggest you to consult a Financial adviser.
This blog is purely for information purposes only and we do not take any responsibility whatsoever as the blog content may be changed from time to time and is generic in nature.

Sunday, June 24, 2012

BIG Fund Size is Also a Problem

Is
a Big Corpus good or bad for a Fund???
Let us find out…

Sandeep Kumar asked :
“sir,

All keep on insisting that one
should not go for the fund which has grown to a huge corpus,
as SBI Magnum Tax gain. It has been mentioned again and again
that such funds tend to become imbalanced and it becomes difficult to manage
such heavy funds by the Fund manager.

On the other hand, all sites are
prescribing DSP rock top 100, Which is again going large in corpus. If I invest
rs 2000 as SIP for nest twenty years, Its impossible to get suitable returns as
this fund will be heavily burdened that time. So, How to survive this BIG
corpus Problem ?
Please HELP. Thanks a Lot.
Sandeep Kumar”

SRIKANTH SHANKAR MATRUBAI replied :

Dear Sandeep,
Yes, you are right. A Big corpus makes it unwieldy for
a Fund Manager to manager his Fund in prudent fashion. Likewise a Small Corpus
makes it difficult to make Large Purchases during attractive downturns.
Thus, it is essential that AMCs set up a Cap for each of their Funds, wherein,
if the Fund Corpus goes above their comfort zone, they stop Fresh Subscription
into the Fund.

This
strategy was sucessfully done by the IDFC Premier Equity Fund. Inspite
of Bullish Markets, they resisted the attraction of Fresh Subscription and
allowed fresh money to come in only through SIPs which allowed the Fund to
perform better most of its peers.
Even Reliance Growth Fund once stopped Fresh Subscription in 2005 for a
brief period.

In fact, recently, a Fund Manager
confided in me, “Large Corpus means less avenue to invest, especially in
a Sector Fund”.

Even Prashanth Jain of HDFC
Mutual Fund has admitted “Managing Large Corpus needs more effort when
changing the portfolio”.

Dhirendra Kumar of Valueresearch says “An investor must be watchful as too big asset size
can be problematic for a scheme”.

But, what I in finality say
is…“Size should be secondary consideration while choosing a fund. Before
investing in a fund, check its parentage and consistency across market cycles.“
If you are particular about Fund Size, then chose a fund which is nearer the
Category Average.

As for SBI
TaxGain it has had a unwieldy Corpus since more than 2 years now. However, the
Falling Markets has ensured that its Fund Size is just about the Manageable
Limit.
As for DSP Blackrock top 100 fund, you can
consider going for investments, however, do make periodic reviews and make
appropriate adjustments.
Your mutual fund investments need to be periodically
monitored. More than the fund size, you will need to keep track of its
performance. If you notice a significant degradation of performance, then you
will need to find an another fund to invest in. Please note, performance is the
key (though fund size might indirectly affect performance).
Even Mirae Asset too has been very successful because
of small size which allows it to be nimble-footed. I like their Mirae Asset
India Opportunities Fund very much.

AMCs
nowadays are awake of the problem of Big Corpus/Fund Sizes and I am sure that
they will not allow their Fund to become So Big that it becomes impossible to
manage.
Go on, invest in DSPBR Top 100 Fund.
Best of luck,
Srikanth Shankar Matrubai

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